Giving investors more choice in real estate

Real EstateHospodárske Noviny


Giving investors more choice in real estate

Property is considered to be a relatively conservative investment. Why has Crowdberry chosen to focus on the area of real estate when you have experience primarily in financing Slovak and Czech companies?

From an investment perspective, we consider the property segment to be just as interesting as investing in companies. We enable people to directly own a stake in a particular property, to participate using a smaller investment amount in larger projects, to become a partner of a professional developer, and to share in the returns from developments, leasing or sales. Investors can choose a property on the basis of a broad analysis and detailed materials prepared by the Crowdberry team, as well as a face-to-face meeting with the partner’s representative. We have under our belt, for example, the successfully financed Seniorhouse project, comprising a modern centre providing care for the elderly and people suffering from Alzheimer’s disease with 150 beds and grounds covering 20,000 m2. Over the summer, with our partner Atrios real estate, we introduced an investment in an apartment building with 29 units in the wider centre of Bratislava. We also opened up several other opportunities in the area of industrial properties, where we combine our experience and set mechanisms from investing in companies. Property should be part of an investor’s standard portfolio. Even though property investments are more conservative, they can appeal to investors due to the attractiveness of projects and, in the case of higher-risk profiles such as development, bring higher returns.

Higher returns are associated with higher risk. How do you want to appeal to investors?

We can offer the possibility of becoming a co-investor in a property with a professional partner – usually a developer – and to share in the profit from the development, leasing or sales. As co-owners, investors have the opportunity to play a direct role in the growth of the given property and the success of the developer. We set up and select investments so that they have a clearly defined return horizon for investors, protection of liquidity, and other tools to protect their investments, including protection of the given property against inflation, for example.

The investment opportunities on Crowdberry’s platform undergo a thorough selection process. We prepare a detailed analysis for investors with respect to several important criteria. We look at not only the location, partner/developer and tenants, but also the development of individual sectors and macro indicators.

What is the difference between investing in real estate funds and investing in development projects via Crowdberry?

The latter involves direct investment in a particular property or property development alongside a professional partner. In this way, investors can significantly diversify their portfolios and supplement them according to their own preferences and possibilities. At the same time, investors have the opportunity to be part of an investors’ club, featuring Crowdberry’s professional structure and the ability to invest with multiple partners among whom they have the same standing and to jointly play a part in the business plan. As a matter of course, there is direct contact with the owners and representatives of the companies with which the investors are entering into the investment process. We set the structure of the investment and protection of investors specifically for the given opportunity and its level of risk. Throughout the process, we use our know-how and experience with the control mechanisms of renowned partners in the areas of law, finance and technical audit. You won’t find this approach in standard real estate funds, where investors do not have such a direct impact on the properties in which they invest or on the development team that is preparing the given projects.

According to experts, annual returns from premium real estate reach 5.5% to 6.5% in Slovakia. What level of returns will you offer investors?

We bring investors returns at a minimum level of 8% to 10% and, in the case of a particularly successful project, up to 12% to 15%. We achieve this by carefully selecting investment opportunities in the initial phase of project preparation and through direct investment without intermediaries, though with appropriately set-up protective tools for investors.

In Slovakia and some other Central European countries, commercial properties have until now achieved higher returns than in some Western countries. Why is that?

That is primarily due to the size and stability of the Slovak market, as well as the basic dynamics of supply and demand, liquidity and risks. Unfortunately, it is still true that the Slovak market receives most of its capital from abroad and that defines the price to a large extent. We believe that improvement in the local investment environment and the possibility of direct investments and allocation of domestic resources will increase liquidity, and we are thus contributing to the greater dynamics of the local investment market and to the reduction of its dependence on foreign capital.

Which segment of commercial real estate provides the highest returns?

That depends on the country, as well as on the type of investment. In general, industrial logistics properties and retail parks should bring the highest returns. Of course, everything is influenced by the location and whether it is a development or a stabilised existing property. However, other important factors include the investment structure and whether the investor has the possibility to acquire a stake in the development, and it also depends on the skill of the partner with whom you are investing. Of course, the data could now change significantly as a result of the pandemic situation.

The heightened uncertainty caused by the coronavirus pandemic has led owners to sell properties in order to free up capital tied up in real estate. Are you concerned that returns from commercial properties could decline due to the problems of tenants who have lost contracts?

Real estate is undergoing major change; the established parameters are being rewritten. We are closely monitoring all trends both in the area of real estate and in corporate segments, and we are assessing which companies are doing well and which segments will continue to grow. We will then proceed based on that when selecting properties suitable for investment. At present, investments in residential and industrial – especially logistics – properties, where we continue to see positive dynamics, appear to be the most promising. However, every property has its price and potential return, and we therefore approach every opportunity on an individual basis. Investments in logistics currently rank among the most attractive and their value is growing, especially in the long-term perspective thanks to the growth of e-commerce and digitalisation of user behaviour.

Internet shops have recently enjoyed a sharp increase in turnover. What is your view of the potential of logistics properties and last-mile centres in particular?

Right now, we have an open opportunity to invest in, which is benefitting from the acceleration of the e-commerce market and has the potential to become a leading provider of infrastructure, warehousing and day-to-day management services for both small and large e-shops in Europe. In the area of delivery services, the volume of transported parcels has been growing dramatically, and it is expected this trend will accelerate further with the change in users’ behaviour due to COVID-19. Another example in Slovakia is the recently opened investment opportunity with the developer KLM real estate in the segment comprising cross-dock centres, which form the foundation of the infrastructure for delivering goods with the aim of getting as close as possible to the customer.

Financial advisors concur that diversification is an important tool for reducing investment risk. How much do you recommend should be invested in real estate projects?

That depends on the investor’s profile, their view of risk, the required liquidity, and specific experience and knowledge in certain areas. With respect to the greater predictability of an investment’s rate of return, I consider property investments to be an important and, in most cases, the dominant part of a portfolio. It is also important that investors have stakes in various segments (residential construction, logistics facilities and so on).

What is the minimum investment to enter Crowdberry projects?

The standard investment starts at €10,000. Such an investment is often lower than that needed for an investment apartment, but at the same time brings the investor into a much larger property with the opportunity to invest alongside a professional partner or, in some cases, a strong tenant. In the case of investments in logistics facilities, such a tenant could be, for example, an established shipping company. It is possible to achieve higher returns thanks to the reduction of the operating costs of the overall investment, the size and portfolio of the partner, and banking conditions that may not be available to individuals.

Where are your projects located?

We focus on properties in the Czech Republic and Slovakia. We choose regions that are interesting in terms of liquidity and return. At present, we are looking at opportunities situated not only in the capitals and their surroundings, but also in regional cities like Ostrava, Nitra and Trnava.

We are interested in opportunities in residential development and industrial real estate, especially logistics facilities. In the retail segment, retail box stores are proving to have the best performance. Investors can currently choose from several investments, each of which have different parameters of risk, return and protection mechanisms. The length of the investment horizon is mainly three to five years.

In most cases, investors have guaranteed protection in the form of a liquidity preference of payment of the return ahead of the partner, a clearly defined investment horizon, clearly established milestones and a business plan.

Crowdberry selects only real estate investment opportunities with proven developers that create high-quality projects in a transparent way. What does that mean in practice?

Just as in the corporate segment, we are particular about the selection of a partner when investing in properties. First of all, we analyse the achieved results – i.e. implemented projects – but also people, as in the key team behind the project. Potential investors have the possibility to meet with the partner in person and ask questions. They have access to the details of the project and the available investment documentation, which is prepared by our investment team and analysts usually over the course of two to four months. The documentation contains information not only about the partner, but also about the property and other key entities that are involved, such as the participating bank and construction company. At the same time, there is information about the competition, market and business plan, where we apply our experience. Based on that information, we strive to predict possible future events and to formulate a plan and possible solution prior to the investment. We collaborate with external consulting companies, which brings greater transparency into the relationship. Not every company in the area of real estate is willing to provide investors with the level of transparency that we do on our platform.

The interview was conducted in cooperation with Hospodárske noviny: